2024 (9) TMI 741 - HC - Income Tax

Insurance company wins exclusion of investment sale profits from tax assessment under Section 44 computation rules

Commissioner of Income Tax – LTU Chennai Versus M/s. Royal Sundaram Alliance Insurance Company Ltd.

The Madras HC ruled in favor of an insurance company regarding exclusion of profits from sale of investments for assessment years 1998-2011. The court ... Exclusion of profits from sale of investments - assessee is an Insurance Company that computes its income in line with the prescription of Section 44 - HELD THAT:- There is no justification in bringing to tax profits from sale of investments so long as they stand deleted for the periods 1998 to 2011. Admittedly, the position for assessments post 01.04.2011 is different. With the introduction of clause (b) to Rule 5 there is a requirement in law to include profits/loss from sale of investments. This Court in the assessee's own case in several tax cases appeals relating to A.Ys 2006-2007 to 2009-2010 has noted the applicability of the earlier decision in the case of United Insurance Company [2019 (7) TMI 387 - MADRAS HIGH COURT] deciding the issue in favour of the petitioner. With this, we find no necessity whatsoever to remand the matter as the facts in issue as well as the applicability of law to those facts is very clear as borne out from the statutory position, and the decisions in United India Insurance Company [2019 (7) TMI 387 - MADRAS HIGH COURT] and Oriental Insurance Co. Ltd. [2017 (9) TMI 172 - DELHI HIGH COURT] As regards the reference to the judgment in Apollo Tyres Ltd. [2002 (5) TMI 5 - SUPREME COURT] would have no relevance to the present case as it was delivered in the context of the computation of income under Minimum Alternate Tax (MAT) for which the basis is the profit and loss account, as confirmed by the shareholders in the Annual General Body Meeting of that company. In the present case, the situation is entirely different and distinguishable as the assessments are under regular computation, and are premised upon the application of Section 44 which is specific to Insurance business, read with Rule 5 of the First Schedule. Decided in favour of assessee. Issues:Challenge to order of Income Tax Appellate Tribunal regarding exclusion of profits from sale of investments in assessment years 2003-04 and 2004-05 under Income Tax Act, 1961.Detailed Analysis:1. The appellant, Commissioner of Income Tax, challenged the Tribunal's order denying the exclusion of profits from the sale of investments by the respondent, an Insurance Company, in the computation of income for A.Ys 2003-04 and 2004-05 under Section 44 of the Act.2. The assessee, following Section 44 and Rule 5 of the First Schedule, excluded profits from the sale of investments in its income computation. The Assessing Authority, however, added back these profits, citing a mandate under the Insurance Act, 1938, to disclose such profits in the Profit and Loss Account.3. The first Appellate Authority allowed the assessee's appeals, emphasizing the purpose behind the exclusion of Rule 5(b) from the First Schedule, indicating that profits/losses from the sale of investments by insurance companies were to be excluded from income computation.4. The Tribunal, in its detailed order, upheld the assessee's position, considering the Circular of the Central Board of Direct Taxes and previous decisions on the issue, leading to the Revenue's appeal before the High Court under Section 260A.5. The High Court, after hearing detailed submissions, analyzed the applicability of Rule 5(b) during the period of deletion (1988-2011) and concluded that there was no justification to tax profits from the sale of investments during this period.6. Referring to previous judgments and the CBDT Circular, the Court emphasized that the purpose of omitting Rule 5(b) was clear, and there was no legal basis to include profits from the sale of investments in the income computation for the relevant period.7. The Court also addressed a review application filed by the assessee regarding a previous order, clarifying the applicability of relevant decisions favoring the assessee, ultimately dismissing the Revenue's appeal and ruling in favor of the assessee.8. The Court distinguished the judgment in Apollo Tyres Ltd. as irrelevant to the present case, highlighting the specific nature of assessments under Section 44 for insurance businesses, concluding that the exclusion of profits from the sale of investments was justified.9. Ultimately, the High Court answered the substantial questions of law in favor of the assessee, dismissing the Tax Case (Appeals) and ruling against the Revenue, with no costs awarded.This detailed analysis covers the key legal arguments, interpretations of relevant provisions, and the Court's reasoning leading to the final judgment in favor of the assessee.